Jamie Sturgeon | Victoria Times-Colonist | July 28, 2010
TORONTO -- Canada’s new wireless providers are luring subscribers from incumbents Rogers Communications Inc., Bell Canada and Telus Corp., rather than attracting customers who are picking up a cellphone for the first time, according to one of the first detailed looks at the new competition.
The revelation, among other developments, may revive concerns among investors that upstart players will wreak more havoc in the country’s traditionally staid $16-billion mobile market than has been assumed, while the established firms are likely to hit at their own bottom lines to guard market share, analysts say.
“Hide from wireless,” Jeff Fan at Scotia Capital recommended to clients in a note published Monday. “We expect competition risk.”
About three-quarters of all subscribers with Wind Mobile, Mobilicity and Public Mobile have been cherry-picked from the three major incumbents, a report from Scotia Capital says. It is a higher percentage than some thought would prevail, and could contribute to more aggressive efforts to retain customers at Rogers, Bell and Telus, which together currently control about 96% of the wireless market.
One rumour is that Rogers is set to introduce a new discount brand called “Chat.r.”
Rogers’ new brand would be aimed directly at the area in which new entrants are having the most success: low-income, city dwellers and immigrant communities that want cheap, unlimited voice and text services.
Chat.r will launch during the all-important back-to-school season, typically the highest selling period for a carrier alongside Christmas. Unlike Rogers’ current discount brand Fido, the new service will be completely prepaid with no contracts, closely mirroring the most attractive plans offered by the three new entrants, sources said.
Chat.r will stem subscriber losses for Rogers but at a price. The telecom behemoth will take a hit on the average revenue per user (ARPU) it generates per month, which currently stands at $62.02, the highest among Canadian carriers.
Rogers declined to comment on Chat.r.
“We’re always working to innovate and better serve Canadians, but have nothing to announce at this time,” said Odette Coleman, Rogers’ director of communications.
A new launch would have broad implications for the market. Bell and Telus will almost certainly move to match any repricing while new entrants will also react, threatening all with a punishing price war. “Our concern is that it will ignite retaliations,” Mr. Fan said.
After much uncertainty and — unfounded — anxiety last year, the market has mostly dismissed the new-entrant risk through fiscal 2010. Rogers, Bell and Telus have all seen their stocks rally (as much as 20% in Telus’s case) as ARPU has stabilized and performances have rebounded against weak year-ago comparables.
There may be room left in the run-up as solid second-quarter results are expected again at the end of the month. Yet after that, valuations will be hard-pressed to justify such levels, some say.
“We urge incumbent wireless investors not to be complacent,” Dvai Ghose, analyst at Canaccord Genuity said in a note late last week. The analyst also foresees downward price pressure ahead, especially in Eastern Canada.
In Quebec, Vidéotron Ltée. will launch wireless at the end of summer with aggressive discounts, particularly on data plans which could come in 40% cheaper than current incumbent pricing. Vidéotron operates in Montreal and surrounding areas, but a price cut there could prompt restive customers in other areas to barter for the same.
“Rogers and Bell are particularly susceptible as they enjoy industry leading market share in Ontario and Quebec,” Mr. Ghose said.
With the ability to bundle Internet, phone and TV services, Videotron is expected to experience more sustained success in the wireless market than Wind, Mobilicity or Public Mobile. Despite garnering most of their customers from incumbents, new entrants are believed to be tracking below their own estimates and even the more tempered expectations of analysts.
All four firms won licences to operate cellphone businesses at the 2008 wireless spectrum auction. Wind has been rolling out services across Canada since its December launch, while Mobilicity and Public Mobile began operating in Toronto in May.
jasturgeon@nationalpost.com
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